May 2024
Volume No. 25, Issue No. 6

What do you focus on in your small business?

Perhaps it is because the first line of an income statement that small business owners focus their business attention on sales/revenue/income. Pay attention to that top line and the rest will take care of itself. If you have a financial problem in your small business, then more sales should resolve the situation. Many small business owners focus on the "top line."

All of these concepts are incorrect as there is only one focus. Instead you should have multiple focuses.

What is your gross margin? Adding a couple of percentage points to your gross margin makes a big difference to the net profit.

What percentage of your revenue is spent on personnel? Are you looking at industry reports to get a guideline to not having too many employees?

What percentage of your revenue is spent on the building your business occupies? And, don't forget all other occupancy costs like water, electric, gas, and building insurance.

What percentage of your revenue is spent on your marketing efforts? And, as you spend, are you seeing indicators that the marketing is working? (Not just that your revenue is increasing, but a relationship between revenue and marketing)

If you have inventory, what is the turn rate? Are you comparing your inventory turn rate in 2024 to what it was in 2023 and 2022? Slower turn rate can indicate that you have too much money sitting on the shelf. Writing multiple smaller orders instead of one sizable order can often be the solution.

Lastly, consider all the other expenses we have not mentioned. What percentage of revenue is being spent there?

Having the most profitable business should be the focus; not the top line.

Article of the Month - Pick your customer

"I don't want to lose a sale", is a statement that can frequently be heard when asking a business owner about the services and products they offer. While no one wants to lose a sale, it is an incorrect business strategy by trying to be everything to everybody.

In the south, the word "niche" is pronounced so that it rhymes with itch. Doing so, there is an expression that is appropriate; "the better you niche, the more you get rich".

There are more details in the article of the month on the Profits Plus website.

Article of the Month

Book of the month - Lean Startup by Eric Ries

If you started your business some twenty plus years ago, would you be an appropriate advisor for someone who is starting a similar business today? Or, have things changed so much that what you have no relevancy for someone today?

We think the answer could be a combination of items; your knowledge and experiences along with the book of the month - Lean Startup by Eric Ries. While recommending the book as a good read, remember that your most valuable asset in starting or changing your business is likely to be what is referred to as your "gut feeling".

Book of the month

Internet Tool for Your Business - Cashflow planning

There is an old expression of small business; "Sales may give a thrill but it is cashflow that pays the bills".

There is a lot of truth to that advice. Unfortunately, we have found that the majority of small business owners have not learned about cashflow management. If they get any monthly financial information, it is an income statement and balance sheet.

There are two formats in accounting; cash basis and accrual basis. Cash basis means all incomes and expenses are reported in the month the cash is received or the expense is paid. Accrual basis means incomes and expenses are reported in the month they occur. An example of income is a service business that does a job over several months and receives one or more payments. An example of expense is paying the annual property taxes in one payment.

This month we offer, as a free download, our template for cash basis accounting.

Each month we highlight one of the 47 free tools on the Profits Plus website; we call them "calculators". While some provide analysis by numbers and ratios, some are assessments and others are self-examination questions. Many are downloadable while others, because of the complexity of the calculations going on behind the scene, are a part of the website and allow you to print your answers. None of them require you to give any personal information nor are there any "cookies" tracking you or your information.

Internet Tool for your business

Staff Incentive for Your Business

The May staff incentive is rather unique and is based on a Gallup report that appeared in the Gostick and Elton book. The report states that 29% of the workforce is actively engaged. The counter statement is that 71% of the workforce is simply showing up and putting in their time. (There are days I believe it is more than 71% that are just showing up.)

The concern is the effect these people are having on those individuals who are working hard and engaged. There is an adage that states that, "one rotten apple can spoil the whole barrel."

The incentive is for those who are working hard. Perhaps the rotten apple in your business needs to go away. Oddly enough, when I have mentioned terminating such an individual while addressing an audience of small business owners, there has often been many facial expressions of relief and agreement.

Not saying you should fire people, but it can be an incentive to employees to show support for those who are actively engaged.

We want to recognize A Carrot A Day by Adrian Gostick and Chester Elton, whose book provides the basis for each month's incentive idea.